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China’s Consumer Prices Rise, Easing Deflation Pressures

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China’s Economy Edges Out of Deflation

China’s economy edged out of deflation in August, as Beijing struggles to promote growth and revive investor confidence following a slide in the country’s property market and a plunge in exports.

Consumer Prices Index

  • The consumer prices index was 0.1 per cent higher year on year in August
  • Below a Reuters poll of analysts for a 0.2 per cent increase
  • Emerging from the negative territory of minus 0.3 per cent recorded in July

Producer Prices Index

  • The producer prices index fell by 3 per cent year on year
  • In line with analyst expectations
  • Less severe than July’s 4.4 per cent fall
  • Producer prices were also a fraction of a per cent higher month on month

China’s National Bureau of Statistics said on Saturday the consumer prices index had on average increased 0.5 per cent in the first eight months of the year compared with the same period in 2022.

Sustained Weakness in Inflation

The sustained weakness in inflation in the world’s second-largest economy comes as Beijing has launched a wave of measures to try to boost demand, which has faltered since China emerged from crushing Covid lockdowns last year.

The country’s property market, which accounts for about a quarter of economic activity, remains on life support with large private sector developers suffering a liquidity crunch and buyers reluctant to venture into the market.

Policymakers have cut mortgage rates and relaxed stringent requirements for loans but analysts have described the measures as “piecemeal” and have called for more fiscal stimulus to boost demand.

Weakness in Domestic Economy and Falling Exports

A central problem for Beijing is that the weakness in the domestic economy has coincided with a plunge in the country’s exports, as inflation in the west suppresses consumption.

China’s statistics bureau said food prices dropped by 1.7 per cent in August compared with a year earlier and non-food prices increased by 0.5 per cent. Consumer goods prices dropped by 0.7 per cent and service prices increased by 1.3 per cent.

Among the items in the producer prices index, building materials and non-metals prices fell 6 per cent while ferrous metal materials fell 5.6 per cent.

China’s disappointing growth and falling exports have sparked foreign investor outflows from its stock markets and contributed to a weakening of the renminbi to lows against the dollar not seen since 2007.

China’s exports dropped 8.8 per cent in August compared with a year ago, according to figures released this week, but the contraction was marginally less severe than analysts expected. It was also an improvement on July’s 14.5 per cent decline, the worst since the start of the coronavirus pandemic.

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